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By Michael Yardney
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Why 2024 could be the WORST time to buy property

key takeaways

Key takeaways

2024 will be a very different property market to last year and the year before, but there is really no “best” time or “worst” time to buy property.

Property investment is a process, not just an event.

So rather than just talking about going out and buying a property in 2024, the right time for you to consider investing is when you have all your ducks in a row.

For some of you who are reading this right now, 2024 will absolutely be the worst possible time you could consider buying a property.

For others their is a window of opportunity before the market resets and the next cycle begins.

Savvy property investors are likely to re-enter the market in 2024 after a year in which many sat on the sidelines because of fast-rising interest rates and high prices.

It’s a bold statement, but it’s true.

For some of you who are reading this right now, 2024 will absolutely be the worst possible time you could consider buying a property.

Business Risk Problem

There is the spectre of interest rates and inflation remaining higher for longer than we hoped, the continual media coverage predicting economic challenge, some property perma bears suggesting property prices will fall (which by the way is wrong) and geo-political tensions around the world which only seem to be getting worse with the escalation of hostilities int he Middle East.

In fact for some people, moving forward with a real estate purchase this year would have the potential to cripple them financially, not just now but well into the future.

Sounds dramatic, right?

And I'll give you 9 reasons why this could be the worst time to buy property in a moment… but here’s the truth.

This statement rings true in 2024.

It was also true last year.

And the year before that.

And in 2015, 2010, 1985, 1972…

The reality of real estate is that…

There is no “best” time or “worst” time to buy property

Here’s why…

Property investment is a process, not just an event.

So rather than just talking about going out and buying a property in 2024, the right time for you to consider investing is when you have all your ducks in a row.

This means you have:

  • a strategic property plan, so you know where you're heading and what you need to do to achieve your financial goals,
  • set up the right ownership structures to protect your assets and legally minimise your tax,
  • a robust finance strategy with a rainy day buffer in place to buy you time

Of course, for some 2024 will be a great year to invest, but in a moment I'll explain why that will not be the case for others.

In fact, savvy property investors have been entering the market recently attracted by rising property values and skyrocketing rents.

Portion Of New Lending For Investment Housing

The market has all the right essentials to attract investors.

FOMO (fear of missing out) is already creeping in as buyers realise almost all the price falls of 2022 have now been made up and the media keeps mentioning new record prices being achieved.

With the majority of cash rate hikes now behind us, but continued strong population growth at a time when we are not producing enough supply of new dwellings will exert upward pressure on house prices and rents throughout 2024.

The following chart shows the price upturn is now firmly entrenched with home prices hitting fresh record highs in many markets.

Change In Dwelling Values 3 Months To March 2024

 

2024 is likely to be a year of fragmented markets, with some strongly outperforming others - but this is more "normal."

It will also be a year when rents keep skyrocketing.

I see 2024 will be a year of two halves.

For the first part of the year, consumer sentiment will remain flat.

However it is likely that interest rates will fall in the later part of 2024 and at some stage next year it is likely APRA will relax its mortgage serviceability buffer.

This is currently at 3% and the combination of these factors will increase borrowing capacity and buyers and sellers will return regain confidence and move on with their lives.

Of course, currently each State is at its own stage of the property cycle and within each capital city there are multiple markets with property values still falling in some locations, and stagnant in others.

Rolling Annual Change In Dwelling Values

It’s likely that you’ve heard me talk about the drivers of property price growth over the years.

There are so many things that determine a property’s price performance and growth trajectory, many of which are well outside of your control, and some of which also have nothing to do with the property itself.

These include, but are not limited to:

  1. The economy – the performance and state of the broader economy impact people’s ability to buy and sell property as well as …
  2. Consumer Confidence – when people feel comfortable about their financial situation and their future job prospects they are more likely to make big purchases like moving home or buying an investment property.
  3. Employment levels – if the community at large is experiencing high levels of unemployment, then fewer people can afford to pay a mortgage, which reduces the demand for property
  4. Government policy – aspects to do with tax, depreciation, and homeownership grants will work to boost or reduce demand for property, particularly new property in recent years, which is where the federal government’s primary agenda has been.
  5. Population growth – or household formation to be more exact, as when more people move into an area this equals more demand for housing, whether it’s to buy or rent.
  6. Local Demographics – things like average incomes, average age, household structure, crime rates, and employment opportunities.
  7. Supply – The basic economic principle of supply and demand is a fundamental property market driver of price growth.
  8. Availability of credit – property investment is a game of finance with some houses thrown in the middle, but even owner-occupier demand is very much driven by the availability of finance and the cost of money, in other words, interest rates.

Now, as a result of these factors – which are by no means an exhaustive list, but they give you a general indication of some of the major influences on property prices – our property markets move through cycles, from booms to busts and back again.

In 2020-21 rising property values around Australia were driven by a combination of pent-up demand and historically low-interest rates leading to FOMO (fear of missing out), which led many home buyers and investors to make take shortcuts just to get in the market.

In 2022 we moved through the next stage of the property cycle - the adjustment phase - where property prices corrected in many locations around Australia.

In 2023 most capital city locations made up all the losses of the previous year.

Property values this cycle

A window of opportunity for long-term property investment

Currently, I see a window of opportunity for property investors with a long-term focus.

This window of opportunity is not because properties are cheap, because they are not, however when you look back in three years' time the price you would pay for the property today will definitely look cheap.

The opportunity arises because, in general, consumer confidence is still low and many prospective homebuyers and investors are still sitting on the sidelines.

However, as I said, sooner rather than later many prospective buyers will realise that interest rates have peaked and inflation is continuing to fall.

And at that time there will be a pick-up in demand from buyers as greed overtakes fear, as it always does as the property cycle moves on.

Strategic investors will take advantage of the opportunities our property markets will offer over the next couple of years maximising their upsides while protecting their downsides.

Currently, buyers are still keen but are being more cautious and there is now a "flight to quality" with A-grade homes and investment-grade properties still selling well, but secondary properties languishing on the market.
propertycycle

Over the last few years, the apartment market hasn't grown as strongly as the housing market, but now with the differential in price between units and houses at the highest level on record, and houses becoming more unaffordable for many, I can see continuing growth in family-friendly apartments in great neighbourhoods.

apartments vs houses

Even apartments in the CBD towers and accommodations around universities are renting well as immigrants and students return, however, these never really made good investments and I would steer clear of them.

And rents should also keep increasing around Australia as there is a desperate shortage of good rental accommodation.

Annual Change In Rental Rates National

So why could this be the worst time to invest for some people?

Please let me explain with an example...

Between 2016 and 2018, Sydney and Melbourne property values soared allowing those who owned properties in our two big capital cities to amass small fortunes along the way.

But it’s important to know that just because “Sydney boomed”, that doesn't mean that ALL of Sydney's housing boomed.

It means that overall, the majority of properties across the city experienced an increase in value.

However, there are always some areas, pockets, streets, and individual houses that perform better or worse than the average.

For example, the value of the apartments in many of the high-rise, Legoland towers around Sydney languished as concerns about structural integrity, following the Opal Towers debacle tarred all new apartments with the same brush.

Of course, the concerns raised by COVID-19 only added to this a few years later.

Let me give you a different example.

Let’s say a couple owned a property in a sought-after Sydney suburb in 2017.

They had purchased it 12 months earlier for $1.55m.

It’s right in the middle of a booming property market and sadly, the couple split up.

It’s a messy and contentious divorce, and both parties want to sell the home as quickly as possible so they can move on.

They also don’t want any looky-loo neighbours snooping through their home every weekend, and they don’t have the energy or appetite for a big, public marketing campaign.

Home Property

So, they engage in real estate to sell the home privately/off-market.

It reaches fewer potential buyers and drives less competition, but they secure a buyer within a week.

They sell the property for $1.6m in a hasty settlement and move on.

Had they taken the property to the open market – say, an auction – and a number of would-be buyers fell in love with the property, they could have sold it for more money.

But their circumstances dictated a swift sale, so they accepted the price they got and moved on.

It could be the case that one street over, a couple owns a very similar property.

They are planning to move in with their parents for six months while they build their next property, so they have no deadline or timeline pressures and they’re happy to wait for the right buyer to come along.

They list their home for auction, pay for an expensive but very high-profile marketing campaign, and achieve a final sale price of $1.825m.

Two similar homes, two very different outcomes.

Neither is “right” or “wrong”, and this is the infuriating truth of real estate: there are no “definites.”

Just a series of educated guesses and informed choices, which – with the right expert guidance – can lead you towards making profitable decisions for your future.

When it comes to deciding the right time to buy or sell, at the end of the day, it’s our own personal situation as much as external factors that influence the best course of action we should take.

The fact is, any time could be the worst time for you personally to buy a property... or it could be the best time to buy.

It truly depends on your own goals, budget, timeline, risk profile, and circumstances as to whether 2023 is a good time to buy.

If you've just lost your job or your income is insecure in the current economic climate, then yes, this could be a risky time to commit to a mortgage; in fact, you’d struggle to get a loan.

However, if you're financially stable and have a deposit ready to go, then some might argue that 2023JUvy - I've upd could be the property buying opportunity of a lifetime.

What's ahead for our property markets for 2024?

Our property markets turned the corner early in 2023 and despite 13 interest rate increases property prices have kept rising.

Just as 2023 defied the forecasts of all those economists and the media who predicted further price falls, 2024 will do better than the pessimistic predictions that have recently emerged.

The shortage of dwelling both for sale and for rent, at a time of skyrocketing population growth is going to continue into 2024.

The following chart from ANZ Bank shows they expect housing prices to rise around 6% in 2024 and then around 5% in 2025.

Anz Research

By the way...the recent property boom of 2020-21 was very unusual.

All types of properties in almost any location around the country increased in value substantially.

Moving forward our property market will be much more fragmented.

If you think about it, certain demographic segments will find the rising cost of living due to inflation and higher rents or higher mortgage costs at a time when wages are not keeping up with inflation will either stop them getting into the property markets or severely restrict their borrowing capacity.

This will impact negatively on the lower end of the property markets which will also be affected by the fact that many first home buyers borrowed to their full capacity and will have difficulty keeping up their mortgage payments up at the time of rising interest rates or when their fixed rate loans convert to variable rates.

In other words, there will be little impetus for capital growth at the lower end of the property market

That's why I would only invest in areas where the locals’ income is growing faster than the national average.

These tend to be the "established money" areas or gentrifying suburbs.

Think about it… in these locations, locals will have higher disposable incomes and be able to and are likely to be prepared to pay a premium to live in these locations.

Many of these locations are the inner and middle-ring suburbs of our capital cities which are gentrifying as these wealthier cohorts move in.

There are great investment opportunities in these suburbs in houses and townhouses.

The following forecasts from Oxfrord economics highlight how strong our housing markets are likely to perform over the next 3 years

Price Forecast

But it’s much more than that…

pencil icon

Note: Moving forward neighbourhood will be more important than ever!

Sure during Covid, many Aussies tried to escape the clutter of our capital cities, but now the way we are choosing to live is changing.

The desire to live on a good-sized block of land with a white picket fence and plenty of space with the family has changed is people are once again happy to trade big backyards in the outer areas for small courtyards or balconies as they search for a more convenient lifestyle.

For many people an ideal neighbourhood would mean most facilities will be a 20 walk, cycle or drive away.

In urban planning circles, it’s a concept known as the 20-minute neighbourhood.

In my mind, convenience and options will be the key to desirable locations where people will pay a premium to live.

20 Min Neighbourhood

While new neighbourhoods in the outer suburbs may adapt, they will not have as many choices or options as we see in our inner and middle-ring suburbs.

Sure, they may build a Coles or a Woolworths, but they most likely will not have a Coles and a Woolworths and an Aldi or even an IGA.

They may also get a new bus stop or train line, but they will not have access to both a bus and a train and potentially a tram, ferry, or bike option to get around.

A coffee shop or restaurant or two will also be a must, but the choice of 10 or 15 different options will have considerably higher appeal.

Breweries, boutique shops, art galleries and entertainment precincts will be the icing on the cake.

All at your doorstep – or at least no more than 20 minutes away

As the size of our accommodation gets smaller, demand for options in a great neighbourhood will rise and people will be prepared to pay a premium to live or rent in this type of location.

Understanding these factors forms part of the research data we use at Metropole to help our clients find investment-grade properties or A-grade homes for owner-occupation.

As has happened in the past, moving forward the various suburbs in our cities will show a dramatic range in performance, and in my mind there's no doubt that proximity to lifestyle locations will remain a big drawcard.

As well access to popular education catchments.

This is true of both primary and secondary school catchment zones, which have in general outperformed the market and are likely to continue to do so.

Education is a long-term consideration and, whether you are planning a family, have children already enrolled in school, or are an investor looking to attract long-term, quality tenants, it may be beneficial to consider school catchment zones when you are determining suburbs of interest.

Over the long term suburbs close to the city centre generally perform better than others over the long term.

And this general trend has again been confirmed by a paper by the Australian Housing and Urban Research Institute, which found that both in percentage terms and in absolute terms over the long haul suburbs located reasonably close to the CBD, where demand is high, close to employment and where the most people want to live and where there's no land available for release, outperformed the outer suburbs.

One of the significant changes to occur in Australian cities over the past 50 years, and which has pushed up inner- and middle-ring suburb property values, is gentrification and this will continue to be a capital growth driver of locations that outperform.

READ MORE: Latest property price forecasts revealed

Why 2024 could be the worst time for you to buy an investment property

So back to my initial thoughts for some people this will be the worst time to buy property.

I've written about this topic in detail here, but in short, you should not buy an investment property if:

  • You are buying a property to pay less tax.
    Don't be lured into buying secondary properties that offer high depreciation allowances for excessive negative gearing.
    These new properties tend to come at a premium price, and rarely deliver capital growth for many years.
    In my mind negative gearing is not an investment strategy - it's for short-term funding strategy which only makes sense when used to purchase high-growth investment great properties.
    These tend to be established houses, townhouses, or apartments in desirable streets in top locations in the middle ring suburbs of our three big capital cities.
  • You are driven by FOMO – fear of missing out.
    Sure our property markets are moving surged last year, and of course, it's human to become emotional when considering buying a home or an investment property.
    But investing emotionally leads to bad investment decisions – it's exactly this type of emotion that makes investors fall prey to property marketers and spruikers who will offer you a way to get rich quickly.
    2022 will be a year of a flight to quality as there are more properties on the market - so don't take shortcuts.
  • You want to get rich quickly.
    Property investing is a long-term endeavour, it is a process, not an event.
    The property you eventually purchase will be the result of many decisions that you need to make prior to even starting to search for a property.
    I’ve found it takes the average property investor 30 years to become financially free.
  • You don’t really understand how property investment works.
    Many people mistakenly believe they understand property investment because they own a house or have lived in one.
    So they end up buying a property close to where they want to live, where they want to retire or where they holiday.
    Again, these are emotional reasons to purchase a property rather than selecting based on sound investment fundamentals.
    On the other hand, successful investors have formulated a sound investment strategy that suits their risk profile and helps them achieve their long-term goals and one which has stood the test of time.
  • You're not financially fluent.
    I found many investors are looking to invest in property to help increase their cash flow, but if they do not have the financial discipline and cash flow management skills required, taking on the extra debt of an investment property only compounds their problems.
  • You're looking for a multi-purpose property
    If you are buying a property with the aim of creating wealth, but it also has to be your future home or a part-time holiday home, or somewhere to retire in the future; then you're probably wanting too much for that one little property to achieve.
  • Your finances are not in order.
    Property investment is a game of finance with some real estate thrown in the middle.
    To get into the property you should have a stable job, profession, or business with a steady income and need to be attractive to the banks so they lend you money, plus you should have sufficient stashed away in a financial buffer to see you through the inevitable rainy days ahead.
  • You don't have enough money (yet!).
    If you can’t afford an investment-grade property, either because you haven’t saved a sufficient deposit or you can’t service the loan repayments, then rather than buying a secondary property, in my mind it’s better that you wait and buy an investment-grade property.
  • You are trying to time the market or find the next hotspot.
    Sure property markets move in cycles and it would be great to buy near the bottom or find a location that will be the next hotspot, but the landscape is littered with investors who tried to time the market and failed.
    Instead, the right time to buy real estate is when your finances are in order and you’ve got the ability to purchase an investment-grade property.
    Remember there is no one property market in Australia so there will always be opportunities somewhere.

ALSO READ: 52 years of valid reasons not to invest

About Michael Yardney Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.
33 comments

Hi Michael, Why are we keeping that ANZ price forecast up when we have the 2027 predictions in a chart and the one where Perth tops a million by 2027

1 reply

Interesting well-balanced article that covers a lot of fundamentals affecting property, but the headline is misleading. Addressing the headline: People's finances determine the best time to buy and sell. Hence there is always a worst and best ti ...Read full version

1 reply

You missed one major thing that determines a property’s price. The money laundry

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